H.R.Khanna, J.

(1) THIS appeal by special leave is directed against the judgment of Allahabad High court whereby that court answered the follow* ing two questions in a reference made to it under S. 66(2) of the Indian Income Tax Act, 1922, (hereinafter referred to as the Act) :

(I) Whether there was material for the finding that the shares in question were purchased by the assessee with a view to acquire the managing agency and the control of the company or the shares constituted his stock-in-trade ?

(II) Even if the shares in question did not constitute the stock-in-trade of the assessee, whether the profit made on the sale of shares did not constitute capital gain chargeable to income-tax under S. 12-B of the Act ?"

ON the first question the answer of the High court was that there was no material for the finding that the shares in question were purchased by the assessee with a view to acquire the managing agency and control of the company. It was further held that the shares constituted the stock-in-trade of the assessee. In view of the above, the High court held in answer to question No. (ii) that the prints made by the sale of shares could not constitute capital gain chargeable to income-tax under S. 12-B of the Act.

(2) THE matter relates to assessment year 1947-48, the relevant previous year for which was the .Dassera year 2002-2003 corresponding to the period from 16/10/1945 to Oct 5/10/1946.

(3) RAMESHWAR Prasad Bagla, the assessee-appellant, is a partner of firm Agarwal & Co. having one-sixteenth share in the firm. Agarwal & Co., consisted of six groups of partners, viz. (1) Morarka Group, (2) Khetan Group, (3) Saksaria Group, (4) Poddar Group, (5) Baga Group, and (6) Kantilal Nahalchand. The Bagla Group consisted of the assessee and his brother.

(4) M/S. E. D. Sassoon & Co. Ltd., were the managing agents of the India United Mills Ltd. The latter is a public Limited Company and was engaged in the manufacture of textiles in Bombay. Large clocks of ordinary and deferred shares in the India United Mills Ltd., were held by M/s. E. D. Sassoon & Co. Ltd. and its associates. In 1943, there were negotiations between M/s. E. D. Sassoon & Co. Ltd., and one of the partners ofAgarwal & Go. Those negotiations resulted in an agreement, dated 26/01/1945, under which M/s. E. D. Sassoon & Co. Ltd., agreed to assign the managing agency of the India United Mills Ltd. to Agarwal & Co., with effect from 1/12/1943. The consideration for the sale of managing agency was Rs. 57,80,000.00 Agarwal & Co., also agreed to purchase 16,80,000.00 ordinary shares of the face-value of Rs. 10.00 each and twenty lakh deferred shares of rupee one each of the India United Mills Ltd. The total issued shares of the India United Mills Ltd., were twenty lakh ordinary shares of Rs. 10.00 each and fifty lakh deferred shares of rupee one each. The price for this big lot of shares was fixed at Rs. 3,37,20,000.00 calculated at the rate of Rs. 16/8.00 for an ordinary share and Rs. 3.00 for a deferred share.

(5) AT the time when the above mentioned large block of shares of the India United Mills Ltd. was agreed to be acquired, Agarwal & Co. was not in a position to pay for five lakh ordinary shares involving an outlay of Rs. 82,50,000.00. Those five lakh shares were purchased by Ramkumar Shivehandrai of Poddar Group of partners in Agarwal & Co., to the extent of three lakh shares. The remaining two lakh shares were purchased by Khetan Group of partners. The two groups, viz., Poddar and Khetan Groups held the five lakh shares on behalf of Agarwal & Co. till 1944. The understanding with Poddar and Khetan Groups was that those shares would be taken up by the partners of Agarwal & Co. at the same price. In January, 1945, the aforesaid five lakh ordinary shares were taken over by Agarwal & Co. from Poddar and Khetan Groups. The assessee appellant was entitled with reference to his holding in Agarwal & Co. to 31,25